Posted by Apex Home Loans ● August 20, 2020

Home Prices Depend on Supply and Demand

You May be Wondering if it is a Good Time to Buy

As we enter the summer months and continue to work through the challenges of COVID-19, many are wondering what impact the economic slowdown will have on home prices. Looking at the big picture, supply and demand will give us a pretty good idea of what’s to come.

As we enter the second half of the year, we face an undersupply of homes on the market. Keep in mind, this undersupply is going to vary by location and by price point. According to the National Association of Realtors (NAR), across the country we currently have about 4.1 months’ supply of homes on the market. Historically, a 6 months’ supply is considered a balanced market. Anything over a 6 months’ supply is a buyer’s market, meaning prices are kept down. Anything below 6 months is a seller’s market, meaning prices appreciate. The graph below shows inventory across the country since 2010 in months’ supply of homes for sale.

Home Prices Depend on Supply and Demand - graph

Robert Dietz, Chief Economist for the National Home Builders Association (NAHB) says:

“As the economy begins a recovery later in 2020, we expect housing to play a leading role. Housing enters this recession underbuilt, not overbuilt. Estimates vary, but based on demographics and current vacancy rates, the U.S. may have a housing deficit of up to one million units.”

Given the undersupply of homes on the market today, there is upward pressure on prices. Looking at simple economics, when there is less of an item for sale and the demand is high, consumers are willing to pay more for that item. The undersupply is also prompting bidding wars, which can drive price points higher in the home sale process. According to a recent MarketWatch article:

 “As buyers return to the market as the country rebounds from the pandemic, a limited inventory of homes for sale could fuel bidding wars and push prices higher.”

In addition, experts forecasting home prices have updated their projections given the impact of the pandemic. Leading housing groups and institutions (see below) expect home prices to appreciate through 2022. The chart below, updated earlier this week, notes these forecasts. As the year progresses, we may see these projections revised in a continued upward trend, given the lack of homes on the market. This could drive home prices even higher.

Home Prices Depend on Supply and Demand - graph 2

Bottom Line

Although many may assume that home prices will depreciate due to the economic slowdown from the coronavirus, experts disagree. As we approach the second half of this year, we may see home prices rise even higher given the lack of homes for sale on the market.

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Topics: Housing Prices, Housing Data, Housing Forecast, Home Prices, Housing Market, home pricing